Austin apartment complexes throwing doors open to short-term rentals

The Japanese restaurant Fukumoto is located on the ground floor of Corazon, an apartment building in downtown Austin that’s now leasing nearly a quarter of its units as short-term rentals. RICARDO B. BRAZZIELL / AMERICAN-STATESMAN

At Corazon, a trendy 2014 complex on the east side of Interstate 35, a studio apartment runs $1,600 a month — or $170 a night. You can live at The Arnold, built in 2016, for $2,000 a month or stay one night for $229.

Are these apartment complexes? Or hotels?

Many of the newer, nicer apartment complexes cropping up across Austin’s landscape share a new trait. They’re licensing chunks of units as short-term rentals to be furnished and leased by the night, just like hotel rooms.

Corazon, for example, on East Fifth Street, has 62 of its 256 units — 24 percent — licensed as STRs. The Arnold, on East Sixth Street, has 20 short-term units. Lamar Union, near the Alamo Drafthouse Cinema on South Lamar, has 20 such units, and two downtown Amli complexes, on either side of the W Hotel, have a combined 57.

“That’s wild,” said longtime real estate developer Ed Wendler when told about the numbers. “That could start impacting the rental market if it’s that large a number.”

Until the rise of such websites as Airbnb and Austin-based Homeaway, such rentals were generally limited to corporate apartments, perhaps near an industrial or medical district, that occasionally housed a company’s employees. Now, tourists and everyday business travelers are getting in on the idea of nixing hotel rooms for a more residential stay. Austin ordinances allow apartment buildings to license up to a quarter of their units as STRs.

When Taylor Fletcher, a 28-year-old Park City, Utah, resident, came to Austin to attend a wedding with his girlfriend and her family, they didn’t stay at a downtown hotel or at the wedding venue hotel on South Congress. Instead, they stayed next door to a hotel at The Catherine, a luxury high-rise apartment complex, where they had multiple bedrooms surrounding a full kitchen.

Fletcher, an Olympic skier who competed at the Pyeongchang Games this past February, spends much of his life traveling for competitions, particularly in northern Europe. He and his U.S. teammates usually stay in apartments instead of hotels.

“If I could do it everywhere, I would,” Fletcher said. “You have a kitchen. You’re not crammed into a hotel room. The people living there might know that we’re renters, but we don’t know that they’re not.”

Catering to tourists

Two years ago, Brian Carrico and Chris Herndon tapped into the desire of travelers to expand their lodging options when they founded The Guild, a “collection of boutique hotels located in upscale residential buildings,” according to its website.

The company has 170 units spread across eight Austin buildings, including those at Corazon, Amli and The Arnold. It now has 35 units in Dallas, as well. The company caters to “people who want to be more a part of the city, rather than a traditional hotel,” Carrico said in an interview.

“We try to find interesting places to locate,” he said. “Our neighborhood guides prioritize getting guests out of the rooms and into local businesses.”

The company relies on the apartment buildings to decide how many units to set aside as hotel rooms, based on how many units they might typically have vacant at a given time. The Guild leases the unit from the complex at a set per-month price (Carrico called those “comparable” to normal leasing prices) and then furnishes, licenses and rents the units.

“This is becoming more and more common as a form of mixed-use,” Carrico said. “There’s a pretty clear demand for this kind of combination. A lot of travelers want a living room and kitchen and want to be located in a community.”

Even apartment complexes where short-term renting has traditionally been disallowed by lease provisions are starting to loosen their rental provisions.

The Grove, a South Austin apartment complex where the monthly rent for a one- or two-bedroom unit ranges from $1,300 to $1,600, recently became the first Austin complex to partner directly with Airbnb via a program called Pillow. An email to residents last month stated that the program would allow them to rent their apartments as STRs, so long as the complex gets a 25 percent cut.

In exchange, Airbnb agreed to purge all non-approved listings at The Grove from its website.

Pillow, which partners with apartment owners to encourage residents to host rental guests at their complexes, lists 63 apartment complexes nationwide that have joined the partnership. The Grove’s email and the Pillow sign-up page say nothing about the city’s licensing of short-term rentals, nor do they appear to limit the number of days a lessee can rent out his apartment.

Representatives of the apartment complex’s parent company, BH Management, did not return calls for comment.

Assessing ‘a game-changer’

As the practice of merging apartments and vacation-style rentals spreads, what does it mean for cities and their residents?

That’s a question real estate watchers are still trying to answer. Anne Talbert, an apartment trends researcher with Austin Investor Interests, said the trend is recent and the group hasn’t uncovered much information about its impact yet, but the development is on its radar.

“Your line of questioning is exactly what I want to ask: What is the impact of this and how is it impacting rent?” Talbert said. “It’s definitely a game-changer. It’s a trend we want to get our eye on.”

Austin’s apartment occupancy rates, now at 92 percent, are expected to rise to 95 percent by 2022, city staffers informed the City Council on Wednesday. The metro area is expected to need 114,000 new apartments by 2030 to meet demand.

In regard to impacts on rents and apartment availability, Carrico noted that The Guild locates only in buildings that already are expensive.

“We’re exclusively in what would be considered luxury apartments so it’s a segment that tends to have higher vacancies,” he said.

Charles Heimsath, president of the real estate research firm Capitol Market Research, said that apartments didn’t rent to tourists five, 10, 20 years ago because websites like Airbnb and Homeaway hadn’t boomed yet. Now, he knows various apartment developers who are planning to include short-term units.

“It just makes sense,” Heimsath said. “Apartment developers are concerned about the bottom line. As taxes continue to increase and operating expenses continue to go up, they try to offset those increasing expenses with additional line items of rental income.”

Tom Noonan, president of Visit Austin, the convention and visitors bureau, sent an email to city officials earlier this year warning that the hotel market in Austin is flattening as growth slows and occupancy levels drop. He said in an interview last month that short-term rentals have helped absorb a spike in travelers to the city, especially during major festivals, but STRs also play a role in slowing hotel occupancy growth.

“We’ve added so many rooms to the marketplace that it’s had an impact,” he said. “Austin is the largest short-term rental market in the state of Texas … Obviously hotels are impacted by the number of short-term rentals in the city because they’re all competing for room nights.”

ABOUT THIS SERIES

This story is the last of three looking at the booming short-term rental market in Austin and the challenges associated with it.

The opening story described how as lawsuits target local rules regarding short-term rentals, property owners complain about a balky licensing process and occasionally resort to subterfuge as they attempt to avoid citations.

As lawsuits target local rules regarding short-term rentals, property owners complain about a balky licensing process and occasionally resort to subterfuge as they attempt to avoid citations.

On Tuesday, American-Statesman reporter Elizabeth Findell will look at how many of the upscale apartment complexes popping up in Austin share an interesting trait. They are licensing chunks of units as short-term rentals to be furnished and leased by the night, just like hotel rooms.

Online: Dive into an interactive, citywide map that spotlights trouble spots within Austin’s short-term rental landscape. You’ll find it with this story at mystatesman.com.